Blue Passports - Abnormally Low Tender or Disruptor?

04 Apr 2018

InsuranceLegalCorporate

The UK Home Office’s recent award of a £490m contract for producing the post-Brexit “blue” British passport has been hitting the news recently, mainly due to the fact that the current incumbent supplier, British-based De La Rue, lost the tender to a Franco-Dutch firm, Gemalto.

As the new passport design was initially heralded as a nostalgic return to Britain’s pre-EU days, the loss of the contract to a non-British company has been met with patriotic furore in some quarters, not least in the Daily Mail which has already set up a petition with 266,000 signatures challenging the decision.

This week, De La Rue – who print passports and banknotes for a number of other countries around the world – indicated that they are considering issuing proceedings to challenge the contract award, despite a spokesperson readily admitting that:

"We can accept that we weren't the cheapest, even if our tender represented a significant discount on the current price.”

If the incumbent supplier is admitting that its bid was higher and the Home Office has confirmed that its chosen firm meets the needs of the passport service and is the most economically advantageous tender – what’s the issue?

The answer may lie in the second half of De La Rue’s statement which stated:

"It has also been suggested that the winning bid was well below our cost price, which causes us to question how sustainable it is."

This line of argument was also put forward by Conservative MP Andrew Bridgen who is quoted in the Daily Mail as saying:

“I think we have to be very suspicious of any bids part-owned by foreign governments who are never going to let them go bankrupt and will support their unsustainable tenders, of which the French have a history.

"In comparison, De La Rue has a track record of delivering a quality service for British passports and, given they are offering cost savings on the current contract, it’s very difficult to see how someone could know better than De La Rue what the actual costs of producing British passports are.”

I will leave it to the procurement lawyers to pick this apart from a legal perspective – although I suspect any intervention from the French government could fall foul of EU State Aid rules – however, the crux of Mr Bridgen’s argument appears to be that the incumbent (De La Rue) should know the cost of producing a passport better than anyone, and the winning bid is lower than their actual costs of producing them, and so must be unsustainable.

In procurement terms, the question is whether Gemalto’s bid is an “Abnormally Low Tender” (and potentially unsustainable), or have they found a way to “disrupt” the established incumbent and provide the same product for less? One of the key questions that may be asked of the Home Office is whether they considered Gemalto’s bid to be abnormally low, and if so, whether they sought any clarification from Gemalto as to how they could meet the tender requirements for such a price.

The outcome of any challenge on the grounds that a bid was “abnormally low” could go one of two ways – it could confirm that there are genuine concerns that Gemalto will be unable to provide the tender requirements at the price it has bid. This could potentially lead to the award of the contract to the second place bidder (presumably De La Rue), or a re-tender. Alternatively, it will confirm that Gemalto’s bid is viable and sustainable thereby implying that De La Rue has failed to innovate in its role as incumbent supplier to the tune of £120 million in savings over the 12 year lifetime of the contract.

The Home Office should rightly put aside patriotic concerns (and pressure from newspapers) and focus on getting the best deal for the British taxpayer – for such a complex contract, this will be a balance of quality and price. Any challenge to the award decision from De La Rue will be risky to them – win, and their position as a provider of quality passport solutions at a competitive price will be enhanced; lose, and questions may be asked as to why a company with the accumulated knowledge from supplying passports to the UK government for almost ten years was unable to put forward a more competitive bid.

Disclaimer

The views or thoughts contained in this blog and in individual posts are those of the individual author and are intended as an example for discussion only and not advice or a prediction of outcome. Each situation an entity or individual may encounter is different and will have diverse facts that affect any analysis and may change the conclusions or opinions expressed here.

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